Leverage is the multiplication of buying/ selling power in Forex Trading.
So when you trade, your actual margin is not really your actual buying power. Lets say you have $100 in your account and you chose a 1:1000 leverage in your fx broker, your actual buying/ selling power now is $100,000. But if you have chosen 1:100 leverage , then your B/S power would be $10,000.
So as one of the highest leveraged market existing, it means that you can trade and earn relatively bigger than what you should only be earning with your present account. And this is how it works, the broker will offer its $1000 for every $1 you deposit into them if you choose 1:1000 leverage ,, and they will be giving you $100 for every $1 you deposit into them if you choose 1:100 leverage.
Why is this important? because the higher the B/S Power that we have, the more currency pair we can buy/ sell. meaning we can be earning what a $100,000 -investor can earn (with 1:1 leverage) , with only $100 on hand, provided that we chose 1:1000 leverage to work with.
You can see how your leverage works when you already chose your leverage setting, and it also works with the volume/lots you set when you already place your order .. and to this, you should start doing risk management to avoid the double-edge sword effect of the leverage to your account.
See these Videos to understand more about leverage.